Q: Recognizing that I never got past Economics 101 , I see the oil industry as having terrible supply and demand dynamics .We are oversupplied even with
OPEC + purposely restraining output and worldwide oil reserves continuing to grow. The oil energy sector continues to be pressured by the green energy politics and technology. With 2 significant wars going on and supply lines being restrained by Houthi activity , the price of oil has been less than spectacular. Canadian oil companies are cheap for a reason. Please provide another view on this sector. Thanks. Derek
OPEC + purposely restraining output and worldwide oil reserves continuing to grow. The oil energy sector continues to be pressured by the green energy politics and technology. With 2 significant wars going on and supply lines being restrained by Houthi activity , the price of oil has been less than spectacular. Canadian oil companies are cheap for a reason. Please provide another view on this sector. Thanks. Derek
5i Research Answer:
In the short term, oil prices can trade anywhere due to a variety of factors like war, production cuts, recession, etc.
What matters most for oil companies is the long-term price of oil, which we think is still favourable given the supply dynamic (constrained due to environmental and political reasons) and demand (stable and growing slowly). We think if investors are bullish on the long-term price of oil, rather than predicting near-term volatility, that oil companies can make decent invesmtnets. We feel most oil companies are very solid in terms of financial position and cash flow generation. In fact, they are in better shape than ever compared to previous cycles while trading at a cheap valuation.